How Improved Logistics Boosts Profits

How Improved Logistics Boosts Profits

Studies have shown that investment in logistical capabilities have a lasting effect on profitability. However, the investment involved is often significant, therefore management must be knowledgeable on the best areas to focus on. Logistics covers many aspects of operations starting from procurement up to the proper disposal.

There is an unlimited potential to improve your logistics and just to give a brief exposition, you can study the following areas where waste is often rampant:

Purchasing. In most companies, there are problems ranging from stock-outs and over-stocks due to the difficulty in predicting demand and obtaining quality supplies at the lowest possible cost. Controlling this sensitive function is difficult due to the prevalence of corruption in some companies.

Transportation. Costs incurred in transporting goods to the consumers are of many categories. It is not only the cost of fuel but the various risk factors a transporter will incur along the way. Management must learn modern ways to effectively reduce transport costs. Using technology to track movement of vehicles is just one example that may help curb expenses due to abuse.

Production logistics. This is vital for manufacturing companies, as the objective of production logistics is to determine how to best maximize the output of the factory through the optimal provisioning of supplies at the right quantity, quality and time to each machine or workstation.

Incoterms. If you will be importing products or supplies, it is important to have current knowledge of incoterms (International Commerce Terms) to avoid delays, misinterpretation and penalties. These are three-letter trade terms pertaining to common sales practices in international trade.

Integration of information technology to logistics. Many companies now have computers and programs that deal separately with the different areas of logistics. There is a golden opportunity to effectively tap information gathered from one database for use in other functions. For example, data from the POS (Point of Sale) used by cashiers could give advanced notice to demand changes that will guide production.

Third party logistics. Management must not overlook the option to outsource their logistical needs if the need arises, such as during periods of abnormally strong demand, or if it would be more economical to do so permanently. Third party logistics providers often have the expertise and volume to complete tasks more economically than most company’s internal capabilities.

Disposal logistics. This aspect of logistics was often previously ignored, but with the growing call for earth-friendly business practices, no company could now disregard the green movement. The most promising approach to look into is the possibility of recycling. This may provide the revenue to offset the needed anti-pollution measures.

What was discussed above should open management’s eyes to the huge savings that is possible with improvements in logistics. Investing on the logistical function will deliver bigger and more sustained profits. Interested in learning more?

*Originally published by the Manila Bulletin. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) All rights reserved. May not be reproduced or copied without express written permission of the copyright holders.

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